Meta-CTA Trading Strategies based on the Kelly Criterion
Abstract
The influence of Commodity Trading Advisors (CTA) on the price process is explored with the help of a simple model. CTA managers are taken to be Kelly optimisers, which invest a fixed proportion of their assets in the risky asset and the remainder in a riskless asset. This requires regular adjustment of the portfolio weights as prices evolve. The CTA trading activity impacts the price change in the form of a power law. These two rules governing investment ratios and price impact are combined and lead through updating at fixed time intervals to a deterministic price dynamic. For different choices of the model parameters one gets qualitatively different dynamics. The result can be expressed as a phase diagram. Meta-CTA strategies can be devised to exploit the predictability inherent in the model dynamics by avoiding critical areas of the phase diagram or by taking a contrarian position at an opportune time.
Keywords
Cite
@article{arxiv.1610.10029,
title = {Meta-CTA Trading Strategies based on the Kelly Criterion},
author = {Bernhard K. Meister},
journal= {arXiv preprint arXiv:1610.10029},
year = {2016}
}
Comments
12 pages